Valuation-Informed Indexing #159 — The Same P/E10 Level Can Mean Different Things in Different Circumstances

I’ve posted Entry #159 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called The Same P/E10 Level Can Mean Different Things in Different Circumstances.

Juicy Excerpt: In the late 1980s and early 1990s, we were on our way from a P/E10 of 8 to a P/E10 of 44. We certainly had no way of knowing at the time that we would end up at 44. We had never gone that high before. But we knew that the P/E10 level was likely to continue going up after hitting 18 even if for a few months it went below that market. Never once in U.S. history has the P/E level peaked at 18. It usually peaks at 25 or 26. So the odds were strong at the time that the long-term direction of prices was downward.

Just the opposite was the case when we hit 18 in early 2009. The P/E10 value peaked at 44 in 2000 and started its way downward. Never in U.S. history have valuation levels began working their way up again on a long-term basis without first hitting 7 or 8. So the 18 that we saw in 2009 was an 18 on the way to becoming a 7 rather than an 18 on the way to becoming a 25. That makes all the difference in the world.


  1. Anonymous says

    So what you are saying is that you can’t time the market. Thanks for confirming why buy and hold with an established portfolio allocation.

  2. Rob says

    Short-term timing never works, Anonymous. Showing that to be so was the most important contribution of the Buy-and-Holders.

    They went off track when they started putting out this crazy idea that long-term timing is not really necessary.


    To fail to engage in long-term timing is to fail to take price into account when buying stocks.

    If there were any evidence whatsoever that failing to take price into account ever worked for a single investor, the Buy-and-Holders would have been shouting from the rooftops about it a long time ago.

    I am sure.

    Take good care, man.


  3. X Files says

    So the 18 that we saw in 2009 was an 18 on the way to becoming a 7 rather than an 18 on the way to becoming a 25.

    The P/E 10 is at 25 right now. So you were wrong. Expensive mistake.

  4. Rob says

    You’re wrong, X.

    I am not looking for short-term results. I am looking for long-term results.

    I wish you well.


  5. x says

    The P/E 10 is at 25 today. That is not an opinion or a prediction. It is a cold hard fact. Mumbling about “long term” is irrelevant. Your statement that in 2009 it was “on its way” to 7 instead of 25 is plainly, objectively, and completely wrong.

  6. Anonymous says

    And we all see you Rob has missed out on the substantial rise in the market over the last several years.

  7. Rob says

    I missed out on something that I wasn’t seeking to obtain in the first place, Anonymous.

    I do not invest for the short term. I invest for the long term.

    Valuation-Informed Indexing ALWAYS does poorly in some short-term time-periods. It’s been doing that for 140 years.

    It also ALWAYS delivers FAR higher returns at GREATLY diminished risk than Buy-and-Hold in the long term.

    That appeals to me.

    If smaller long-term returns at GREATLY increased risk appeals to you, you should stick with the Buy-and-Hold strategies pushed so relentlessly by the Wall Street Con Men.

    My view is that you have been taken. My view is that the people you call “experts” are “experts” only in marketing.

    But I am not God. I offer no guarantees that Valuation-Informed Indexing will work this time. I have been wrong about important things before and it could be that it is happening again.

    So please do what YOU think sounds best, not what I say sounds best to me.

    I naturally wish you all good things regardless of which investing strategies you elect to pursue.


Leave a Reply

Your email address will not be published.

Comments links could be nofollow free.